Corporate Finance
12th Edition
ISBN: 9781259918940
Author: Ross, Stephen A.
Publisher: Mcgraw-hill Education,
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Chapter 8, Problem 18QAP
Summary Introduction
Introduction: The
To calculate: Percentage change in the price of the bonds, showing graph for the bond price versus YTM and interpretation on interest rate risk of the long-term bond.
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Bond J has a coupon rate of 4%. Bond K has a coupon rate of 14%. Both bonds have 17 years to maturity, a par value of $1000 and a yield to maturity of 8% , and both make semi annual payments. If interest rates suddenly rise by 2%, what is the percentage price change in these bonds? What if rates suddenly fall by 2% instead? What does this problem tell you about interest rate risk of lower coupon bonds?
Excel would be good. Thanks.
Bond J has a coupon rate of 4.2 percent. Bond K has a coupon rate of 14.2 percent. Both bonds have ten years to maturity, a par value
of $1,000, and a YTM of 9.4 percent, and both make semiannual payments.
a. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of these bonds?
Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers
as a percent rounded to 2 decimal places, e.g., 32.16.
b. If interest rates suddenly fall by 2 percent instead, what is the percentage change in the price of these bonds?
Note: Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.
a. Percentage change in price
b. Percentage change in price
Bond J
9.40 %
%
Bond K
12.83 %
Suppose that yield rates on zero coupon bonds are currently 26 for a one-year maturity, 3% for a two-year
maturity and 4.% for a three-year maturity (all effective annual rates).
Suppose that someone is willing to borrow money from you starting one year from now to be repaid three
years from now at an effective annual interest rate of 6.5146438635186%. Construct a transaction in which an
arbitrage gain can be obtained. What is your positive net gain for net investment of 0? (net cashflow at t-3)
01345
One possible correct answer is: 0.030250290387703
Chapter 8 Solutions
Corporate Finance
Ch. 8 - Prob. 1CQCh. 8 - Prob. 2CQCh. 8 - Prob. 3CQCh. 8 - Yield to Maturity Treasury bid and ask quotes are...Ch. 8 - Coupon Rate How does a bond issuer decide on the...Ch. 8 - Real and Nominal Returns Are there any...Ch. 8 - Prob. 7CQCh. 8 - Prob. 8CQCh. 8 - Term Structure What is the difference between the...Ch. 8 - Crossover Bonds Looking back at the crossover...
Ch. 8 - Municipal Bonds Why is it that municipal bonds are...Ch. 8 - Prob. 12CQCh. 8 - Treasury Market Take a look back at Figure 8.4....Ch. 8 - Prob. 14CQCh. 8 - Bonds as Equity The 100-year bonds we discussed in...Ch. 8 - Bond Prices versus Yields a. What is the...Ch. 8 - Interest Rate Risk All else being the same, which...Ch. 8 - Prob. 1QAPCh. 8 - Prob. 2QAPCh. 8 - Prob. 3QAPCh. 8 - Prob. 4QAPCh. 8 - Prob. 5QAPCh. 8 - Prob. 6QAPCh. 8 - Prob. 7QAPCh. 8 - Prob. 8QAPCh. 8 - Prob. 9QAPCh. 8 - Prob. 10QAPCh. 8 - Prob. 11QAPCh. 8 - Prob. 12QAPCh. 8 - Prob. 13QAPCh. 8 - Prob. 14QAPCh. 8 - Prob. 15QAPCh. 8 - Prob. 16QAPCh. 8 - Prob. 17QAPCh. 8 - Prob. 18QAPCh. 8 - Prob. 19QAPCh. 8 - Prob. 20QAPCh. 8 - Prob. 21QAPCh. 8 - Prob. 22QAPCh. 8 - Prob. 23QAPCh. 8 - Prob. 24QAPCh. 8 - Prob. 25QAPCh. 8 - Prob. 26QAPCh. 8 - Prob. 27QAPCh. 8 - Prob. 28QAPCh. 8 - Prob. 29QAPCh. 8 - Prob. 30QAPCh. 8 - Prob. 31QAPCh. 8 - Prob. 32QAPCh. 8 - Prob. 33QAPCh. 8 - Prob. 34QAPCh. 8 - Prob. 35QAPCh. 8 - Prob. 1MCCh. 8 - Prob. 3MCCh. 8 - Prob. 5MCCh. 8 - Prob. 6MCCh. 8 - Prob. 7MC
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